- - [ ] Confirm which employees you plan to hire as part of the deal, and when - [ ] Understand that under the Employment Standards Act, 2000, where a business (or part of one) is sold as…
- - [ ] Recognize that ESA minimums are a floor, not the whole picture — at common law, a business sale can still be treated as ending the employment relationship with the seller - [ ]…
- - [ ] Review whether any employees have long service (five years or more), which is one factor in Ontario's statutory severance pay entitlement - [ ] Ask about the seller's overall…
Employees are usually one of the most valuable parts of the business you're buying — and one of the areas where the legal exposure is easiest to underestimate. Employment liabilities don't always show up on a balance sheet the way a loan or a lease does, but they can be just as real once you're the one running the business.
This checklist walks through the main categories of employment risk an Ontario buyer should investigate before closing, organized so you can work through it with your lawyer item by item.
Continuity of Employment (ESA Section 9)
- [ ] Confirm which employees you plan to hire as part of the deal, and when
- [ ] Understand that under the Employment Standards Act, 2000, where a business (or part of one) is sold as a going concern and the purchaser hires the seller's employees, those employees' prior service with the seller can count as service with the purchaser for statutory entitlements
- [ ] Note that this statutory continuity generally does not apply if the purchaser hires the employee more than 13 weeks after the earlier of the employee's last day with the seller and the day of the sale
- [ ] Remember this continuity concept does not apply in a share purchase at all, because the employer entity itself doesn't change
- [ ] Understand there is no general obligation to hire any of the seller's employees in an asset purchase — but if you do, continuity rules can attach
Common-Law Notice Exposure
- [ ] Recognize that ESA minimums are a floor, not the whole picture — at common law, a business sale can still be treated as ending the employment relationship with the seller
- [ ] Understand that a purchaser does not automatically inherit the seller's common-law reasonable-notice exposure just because statutory minimums carry over
- [ ] Ask your lawyer how you plan to treat continuing employees' prior service for common-law purposes, since this is a negotiable point, not an automatic one
Severance and Termination Exposure
- [ ] Review whether any employees have long service (five years or more), which is one factor in Ontario's statutory severance pay entitlement
- [ ] Ask about the seller's overall payroll size — statutory severance pay generally applies where the employee has five or more years of service and the employer's global payroll is $2.5 million or more (or the employer severed 50 or more employees within a six-month period due to a permanent closure) — figures current as of mid-2026, verify before relying on them
- [ ] Identify any employees who may be terminated, not retained, as part of the transition, and who is responsible for their entitlements
Non-Compete and Restrictive Covenant Review
- [ ] Confirm that any existing non-compete agreements with departing owners or key employees were signed with someone who genuinely fits a recognized exception
- [ ] Remember that since October 25, 2021, general employee non-compete agreements have generally been prohibited under the Employment Standards Act, 2000
- [ ] Understand the two main exceptions: a seller who becomes an employee of the purchaser as part of a business sale, and defined executive roles
- [ ] Don't assume a non-compete is enforceable against every departing participant — a departing minority shareholder who isn't becoming an employee, for example, may not fit either exception
- [ ] Distinguish non-competes from non-solicitation and confidentiality agreements, which are not treated the same way under the ESA and generally remain enforceable subject to ordinary reasonableness limits
Records and Compliance Review
- [ ] Request current employment agreements, offer letters, and any restrictive covenants for key staff
- [ ] Review vacation pay, overtime, and leave records for compliance gaps
- [ ] Ask about any current or recent employment-related complaints, grievances, or Ministry of Labour claims
- [ ] Confirm the status of the seller's account with Ontario's workplace insurance system, if the business has employees
- [ ] Review any group benefits or pension arrangements and how they're intended to transition, if at all
Employment Exposure by Deal Structure
| Share Purchase | Asset Purchase | |
|---|---|---|
| Employer entity | Unchanged — same corporation continues | New employer if the buyer hires employees |
| ESA continuity | Automatic (no change in employer) | Applies only if hiring conditions are met |
| Historical employment claims | Inherited with the corporation | Generally stay with the seller, unless assumed |
| Non-compete exceptions available | Same limited exceptions apply | Same limited exceptions apply |
Frequently asked questions
If I don't hire any of the seller's employees, do I avoid all employment liability?
In an asset purchase, generally yes for the seller's existing obligations to those specific employees — but you should still confirm this with your lawyer, since the facts of the transition matter, and any employees you do hire may bring continuity considerations with them.
Can I negotiate a non-compete with the seller as part of closing?
Often yes, if the seller is becoming an employee of your business as part of the deal — that's one of the two recognized exceptions to the general non-compete ban. A seller who is simply cashing out and walking away, without becoming your employee, may fall outside that exception, so this needs to be structured carefully.
What happens to employee benefits and pension plans in an asset deal?
This depends entirely on what's negotiated. Benefits and pension arrangements don't automatically transfer the way they might continue in a share deal, so buyers and sellers typically need to address this specifically in the purchase agreement.
Should I get an employment lawyer involved, or is my transaction lawyer enough?
For most deals, a transaction lawyer experienced in employment issues can handle this due diligence directly. For more complex workforces, layered benefits, or existing disputes, bringing in dedicated employment law input alongside the deal team is a reasonable extra step.
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